According to rational expectations, ________.
A) expectations of inflation are viewed as being an average of past inflation rates
B) expectations of inflation are viewed as being an average of expected future inflation rates
C) expectations formation indicates that changes in expectations occur slowly over time as past data change
D) expectations will not differ from optimal forecasts that use all available information

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that economic agents use all available information, including past and current economic data, to form their expectations. As a result, their expectations will be consistent with the optimal forecasts that use the same information. Therefore, there will be no difference between the rational expectations and the optimal forecasts.

According to Rational Expectations, ________